transitions between video strips in VSE not working... am I doing something wrong?
At the bottom of the preview window you can select the 'channel' to view. At the moment you have "channel 1" selected. The effect is on "channel 2" so Blender is not showing it to you. 

This is called ch solo'ing, that is: make a strip play in solo (by itself) so you can see it without other effects.

To fix it simply change the channel selection to 0 (zero). This will force Blender to view all channels that have anything on them.